Sorkin’s Glass-Steagall straw manThat's a reference to Andrew Ross Sorkin's takedown of Senate candidate Elizabeth Warren, in which Sorkin actually gets Warren to admit that what she's been claiming about the 1999 Gramm, Leach, Bliley Act is not really true;
Of course its repeal contributed, directly and indirectly, to the financial crisis
By Ryan Chittum
When I called Ms. Warren and pressed her about whether she thought the financial crisis or JPMorgan’s losses could have been avoided if Glass-Steagall were in place, she conceded: “The answer is probably ‘No’ to both.”Chittum apparently is of the school that the best way to deal with things that just ain't so is to talk them to death;
The demise of Glass-Steagall is part and parcel with the Commodity Futures Modernization Act, Gramm-Leach-Bliley, Riegle-Neal, the preemption doctrine, therevolving door, the Christopher Cox-style regulators, the death by a thousand cuts, and all the laws that were needed but never passed to update the regulatory system over the last three or four decades, like, say, changes to the tax code to eliminate the perverse tax incentives that favor loading up with debt over building equity.We love that, all the laws that were needed but never passed. Yes, that does pretty much insulate one from whatever one says.
Putting aside that, according to Ms. Warren, the demise of Glass-Steagall and Gramm-Leach-Bliley are the same thing, it is interesting that the editor of the business blog, The Audit, appears to be far less informed than anyone who has bothered to read the Wikipedia article on Glass-Steagall.
And Wiki, comes with voluminous footnotes! One of which cites Princeton economist Alan Blinder;
First, a personal confession: When I was Vice Chairman of the Federal Reserve Board, I was always lukewarm toward repeal of Glass-Steagall. I supported the Board’s pro-repeal position for two main reasons: because markets had torn huge holes in the alleged walls anyway, and because the government should not ban activities unless it has good reasons to do so (which I did not see in this case).
That said, I think the GrammLeach-Bliley (GLB) Act of 1999 has gotten a bad rap in this episode. I have often posed the following question to critics who claim that repealing GlassSteagall was a major cause of the financial crisis: What bad practices would have been prevented if Glass-Steagall was still on the books? I’ve yet to hear a good answer.
Mortgage underwriting standards were disgraceful, but they were promulgated by banks and mortgage finance companies and did not rely on any new GLB powers. The dodgy MBS were put together and marketed mainly by free-standing investment banks, not by newly-created banking-securities conglomerates. All five of the giant investment banks (Goldman, Merrill, Morgan Stanley, Lehman, and Bear) got themselves into severe trouble without help from banking subsidiaries,and their problems certainly did not stem from conventional investment banking activities (the target of Glass-Steagall).
Similarly, Wachovia and Washington Mutual died (and Bank of America and Citigroup nearly did) of banking diseases, not from entanglements with or losses imposed on them by related investment banks. In short, I don’t see how this crisis would have been any milder if GLB had never passed.Well, we're sure that once Blinder hears from Mr. Chittum, he'll see the light.